Debtor options under the Business Continuity Act

1. The Business Continuity Act came into effect on 1 April 2009 and replaces the law on the legal agreement. Since 1 May 2018, the law (with a whole series of amendments) has been included in Book XX of the Economic Law Code. This text takes a closer look at what a debtor in difficulty can do to conclude an agreement with its creditors and thus avoid bankruptcy.

If desired, a debtor can have a debt mediator appointed (even express his own preference), before or during the procedure.

The Business Continuity Act provides for two paths that can be followed. On the one hand, there is the extrajudicial procedure through concluding an amicable agreement. On the other hand, there is the judicial route using the judicial reorganization, with 3 types.

2. Amicable agreement

• The debtor can propose an amicable settlement to all his creditors or to at least two of them. The amicable settlement procedure takes place out of court.
• The debtor can try to obtain the amicable settlement himself or through a business intermediary. The business intermediary will prepare the amicable settlement and will negotiate with the creditors in order to reach an amicable settlement.
• The contracting parties are free to determine the content of the amicable agreement. However, it should be pointed out that two clauses must be included in the amicable agreement, namely an explicit confidentiality and indivisibility clause (the agreement only applies as a whole, no separate agreements can be concluded). In addition, the amicable agreement must also state reasons about its usefulness in view of the reorganization of the company. In the event of insufficient motivation, creditors may incur responsibility. The amicable agreement is filed and kept in the Central Register Solvency (Regsol). However, third parties can only take cognizance of them with the express consent of the debtor.
• The parties to the amicable settlement can submit a joint claim to the presiding judge of the court to confirm the amicable settlement. It is a marginal test, especially with regard to the obligation to state reasons. Consequently, the amicable settlement acquires authentic value and is immediately enforceable. Homologation does not imply approval of the motivation.
• Such an arrangement has several advantages for the creditor if bankruptcy does follow. Firstly, the creditor will not have to repay the payments received under the amicable settlement to the curator   . Secondly, an amicable settlement is advantageous because in the event of a judicial settlement, the creditors cannot enforce their claim for 6 months (the so-called suspect period). The advantage for the debtor in an amicable settlement is the freedom he enjoys to conclude an amicable settlement with the creditors of his choice, so not all creditors have to be involved in the amicable settlement.
• Another advantage is that the amicable settlement remains secret from third parties, so that no bad publicity is created for the debtor.
• The disadvantage for the debtor in an amicable settlement is the fact that he cannot oblige the creditor to conclude an amicable settlement. In addition, concluding an amicable settlement with certain creditors will not provide protection against the claims of the other creditors, since the amicable settlement is not enforceable against third parties.

3. Judicial reorganization

• The debtor can also opt for legal action. This is done by submitting a petition to the Commercial Court. This petition contains, inter alia, a statement of the facts, the objectives that the debtor wishes to achieve with the judicial reorganization, the two most recent annual accounts, an income statement that is no more than three months old and a complete list of all creditors. (11 points ). Assistance from at least a licensed accountant is required.
• As long as the court has not ruled on the judicial reorganization, the debtor cannot be declared bankrupt, nor can the creditors seize the debtor's movable or immovable property. (1)
• In making its decision, the judge must take into account the question of whether the continuity of the company is threatened, immediately or in the future. The court will hear the request within fifteen days after the petition has been filed. During the hearing, the debtor will be summoned to be heard. The court makes a decision on whether or not to grant the judicial organization within eight days after the case has been dealt with. This decision may be appealed to the Court of Appeal within eight days of notification of the judgment.
• Obtaining the judicial reorganization ensures that the debtor enjoys protection against his creditors for a maximum of 6 months and can therefore not be obliged to pay his debts. (unless an attachment has already been made and the date of sale has been determined within 2 months after the reorganization decision. In the event of a rejection and appeal, the suspension until the hearing is maintained. The option also remains to establish conventional security (eg mortgage mandate).
• Judgment with opening reorganization, has the consequence that the judgment is published within 5 days in the Belgian Official Gazette, and the debtor must inform its creditors within 8 days (unless amicable agreement) (they (even an interested third party) can then contest the amount submitted by the debtor; any party to the proceedings, any creditor and any party that can demonstrate a legitimate interest can request to see the reorganization file in RegSol (exception possible for protection of business secrets, but must be can be applied for); legal and conventional securities can even be established afterwards (after all, the debtor retains the management)
• Current agreements are in principle continued ((contractual provisions that provide for automatic termination upon opening of a judicial reorganization procedure are not opposable; with the exception of netting agreements - banks)). Dissolution of an agreement (due to breach of contract) is only possible subject to an express notice of default after the judgment of judicial reorganisation, and to have given the debtor another 15 days to fulfill the agreement. The debtor may, however, request suspension of the execution of the agreement, if required for the reorganization and at the latest within 8 days after having communicated the judgment to the contracting partner). In the event of a subsequent bankruptcy or liquidation, these debts become estate debts.
• A distinction is made between claims in (all claims arising before the judgment of judicial reorganization and whether or not claimable) and outside the suspension (the other). Debt claims in the suspension are further divided into ordinary and extraordinary (secured by a collateral(2) and the owners) and for the amount of registration (e.g. mortgage) or registration (e.g. in the pledge register).
• The purpose of this suspension is to achieve an amicable agreement, a collective agreement or a transfer of the company. Any of these three shapes can be combined. For example, the debtor can opt for an amicable settlement for one business activity and a collective agreement for the other business activity. Each of these three forms is discussed.

3.1. Amicably agreed

This amicable agreement is very similar to the amicable agreement in the extrajudicial procedure. However, there are some differences.

• The debtor again has the option of concluding an amicable settlement with at least two creditors of his choice. In addition, there is also the option of calling on a business intermediary. The judge supervises the negotiations until an amicable agreement is reached. If an amicable agreement is reached, the court will confirm this agreement. The disadvantage here is that, in contrast to the amicable agreement through extrajudicial means, the agreement is published in the Belgian Official Gazette, so that everyone can know that a judicial reorganization has been requested. It is true that the other creditors do not have to be informed by the debtor and not everyone reads the B.S. on a daily basis.
• As a result of the homologation, the creditors concerned have an enforceable title (although the debtor can still request deferment of payment if he does not succeed (art. 1244 Civil Code: "unfortunate and in good faith".

3.2.Collective agreement

Because the debtor concludes a collective agreement with its creditors under the supervision of the court, a reorganization plan is laid down. This reorganization plan contains the following:

• The descriptive part: This part of the plan describes the state of the company, the difficulties it encounters (also the origin) and the means by which it intends to solve these difficulties (3). In addition, this section describes how the debtor will restore the profitability of the company.
• The determining part: This part of the plan contains measures to (partially) satisfy the claims of creditors. Possible reductions on the claim are proposed as well as the payment term.

1. With regard to extraordinary creditors in suspension: suspension for a maximum of 24 months, without prejudice to the interests; more far-reaching measures subject to their agreement (e.g. interest rate reduction, extension of credit duration)
2. to the ordinary creditors: *debt reduction: can go up to 80% of the principal amount of the claim (!), and the plan can also provide that the creditors renounce interest, increases, fines and costs (interest and accessories), but with the exception of of work claims, maintenance debts, claims for damage caused by the debtor to personal integrity (e.g. as a result of an accident), and criminal fines. It should be noted that the proposal for a reduction of a creditor's claim may not be less than 20 percent . Lower percentages are allowed provided that this is expressly justified on the basis of compelling and reasoned requirements related to the continuity of the company. The payment term may not exceed five years from the confirmation of the court.

1. The debtor submits the reorganization plan together with the list of creditors to the registry at least twenty days before the court hearing. The registry sends a message to the creditors listed in the list with the following information:

- Creditors have the opportunity to view the reorganization plan in the Central Solvency Register.

- The place, date and time at which the meeting will take place at which the vote on this reorganization plan will take place.

- The possibility for the creditors to make their comments on the reorganization plan known in writing or orally at the hearing.

On the day of the hearing, the creditors will vote on the reorganization plan. The reorganization plan is approved when a majority of the present creditors representing at least half of all principal amounts owed with their claims agree to the reorganization plan.

Within fifteen days of the hearing, the court decides whether to approve the reorganization plan. The homologation ensures that the reorganization plan is binding on all creditors. So also for creditors who have not voted or voted against. The homologation can only be refused if the legal formal requirements are not complied with or because of a violation of public order. When the court has ruled on the homologation, the reorganization procedure is closed. The verdict is then published in the Belgian Official Gazette.

There is a possibility to appeal against this judgment within fifteen days of notification to the registry of the Court of Appeal.

4.Transfer of Business

The transfer of business can be claimed at the beginning or during the procedure by the debtor. In addition, the transfer can be claimed by the public prosecutor, a creditor or any interested party in the transfer when:

- The company meets the conditions of bankruptcy and no judicial reorganization has yet been requested.

- The judicial reorganization plan is applied for but refused by the court or is withdrawn by the court after approval.

- The creditors reject the reorganization plan.

- The court does not want to endorse the reorganization plan.

The court then appoints a court officer who will be responsible for the organization and realization of the transfer of the company.

The legal representative examines which business activities are eligible for transfer. The debtor has no say in this. Creditors will be paid with the proceeds of the sale. The court officer asks the court to close the judicial reorganization procedure when all transferable activities have been transferred. After the transfer of (a part of) the company, the debtor will be declared bankrupt or liquidated.

The debtor can request the remission of the remaining debts by filing a petition in the Central Solvency Register within three months after notification of the judgment.

Any interested party, including the judicial officer and the Public Prosecution Service, can file a claim against this grant, arguing that the remission may only be granted in part or must be refused in full if they demonstrate that the debtor has manifestly committed gross errors.

* (1) Filing the application has the consequence that the Public Prosecutor's Office is informed within 48 hours (and the order with a liberal profession), a delegated judge is appointed who checks the admissibility and merits; the debtor can no longer be declared bankrupt from that moment on; no more executions of attachments (unless a sale date has already been determined within 2 months of the filing of the application, without prejudice to the option for the debtor to request its suspension); Offsetting of mutual claims is still possible and creditors can still invoke their lien and ENAC.

* (2) The situation is assessed at the time of the judicial reorganization judgment (with the exception of the fiscal mortgage registration; in violation of GwH 18.2.2016, no. 23/2016, www.const-court.be , then after a similar provision WCO Act because it was judged that this violated the equality of the debtors)

* (3) It is also best to show the evolution of the company during the judicial reorganize action procedure, description of the rights of the creditors in the suspension ( table - ordinary or extraordinary -, size of the claim ( breakdown of principal, interests, costs), possibly provisional ( in case of dispute with report of those disputes)

(vision until 1.08.2020)